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Given recent market volatility caused in part by Russia’s invasion of Ukraine, many investors are turning to consumer staples to help bolster their portfolio. These companies are essential to our daily life and do well even if the economy is waning. Canadian consumer staples stocks are not going away and could be an opportunity for some investors in an inflationary climate.
The consumer staples sector is one of the stock market’s 11 sectors and is sometimes called the consumer defensive sector. It includes companies that produce goods and services that people need daily, such as food, clothing, and household and personal care products. This category also includes alcohol and tobacco.
Consumer staples stocks are goods that are always in demand. Consumers generally buy these products regardless of their financial situation or economic stability. This makes them a good bet during times of inflation.
Consumer staples stocks can be broken down into the following 6 industries:
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Consumer staples stocks provide goods and services that are essential for daily life. People regularly buy these items—like milk and bread—regardless of the economy.
On the other hand, consumer discretionary stocks tackle goods and services that you may enjoy but are unnecessary to live.
For example, you might buy things like a new surfboard or a new camper if you have the extra income. But if you lost your job or if the economy was declining, you might reduce or eliminate these items from your budget.
You’ve got 2 main options for investing in the consumer staples sector: individual stocks or exchange-traded funds (ETFs). With a particular stock, you purchase shares of a specific company. This option is highly liquid but is riskier than an ETF. Sector-tracking ETFs give you a basket of securities, which offers portfolio diversity but have higher fees.
Consumer staples stocks include both domestic and international companies that produce all sorts of goods and supplies considered essential for everyday life. Here are some examples of US and Canadian consumer staples stocks:
Loblaw Companies Limited operates in many industries including grocery, pharmacy, health and beauty, apparel, general merchandise, financial services and wireless mobile products and services. Its extensive holdings include Shoppers Drug Mart, The Real Canadian Superstore, Fortinos and the PC Optimum program.
Dollarama Inc. operates a chain of dollar stores across Canada. It sells general merchandise, consumables and seasonal items. The company also offers products online.
Metro Inc. retails, franchises, distributes and manufactures food and pharmaceuticals in Canada. It operates under several banners including Metro, Super C, Food Basics, Adonis, Premiere Moisson, Jean Coutu and Brunet.
Empire Company Limited operates food retail and related real estate businesses in Canada. The company owns, affiliates and franchises retail stores under various banners including Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy, Longo’s and Lawtons Drugs.
Alimentation Couche-Tard Inc. operates and licenses over 10,000 convenience stores all over the world. It operates under a number of banners including Circle K, Couche-Tard, Holiday, Ingo and Mac’s.
Maple Leaf Foods Inc. produces food in the United States, Canada, Japan, China and other international markets. Its brands include Maple Leaf, Schneiders, Greenfield Natural Meat Co., Cappola, Deli Express, Holiday, Lunch Mate, Main Street Deli, Olympic Craft Meats and many more.
The North West Company Inc. retails food and everyday products and services to rural communities and urban neighborhood markets in Canada, Alaska, the South Pacific and the Caribbean.
George Weston Limited, a subsidiary of Wittington Investments, provides food and drug retailing as well as financial services in Canada and internationally. The company operates through 2 segments: Loblaw Companies Limited and Choice Properties Real Estate Investment Trust.
Primo Water Corporation provides water direct to consumers and water filtration services in North America and Europe. It operates under many brands including Primo, Crystal Rock, Mountain Valley, Deep Rock, Mount Olympus, Pureflo, Clear Mountain Natural Spring Water, Canadian Springs, Labrador Source, Eden Springs and Chateaud’eau.
The Coca-Cola Company is a beverage company that manufactures, markets and sells various nonalcoholic beverages worldwide. It operates under many brands including Coca-Cola, Fanta, Fresca, Schweppes, Sprite, Thums Up, Aquarius, Ciel, dogadan, Dasani, Glaceau Vitaminwater, Powerade, Minute Maid, Simply, BODYARMOR, Costa, FUZE TEA, Georgia and Gold Peak.
Tyson Foods, Inc. is as a food company that operates worldwide through 4 segments: Beef, Pork, Chicken and Prepared Foods. Its brands include Jimmy Dean, Hillshire Farm, Ball Park, Wright, State Fair, Aidells and Gallo Salame.
McKesson Corporation provides healthcare supply chain management, retail pharmacy, community oncology (cancer) and specialty care and healthcare information solutions in the United States and internationally. It operates 4 four segments: U.S. Pharmaceutical, International, Medical-Surgical Solutions and Prescription Technology Solutions (RxTS).
The Procter & Gamble Company provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East and Africa. It operates in 5 segments: Beauty; Grooming; Health Care; Fabric & Home Care and Baby, Feminine & Family Care.
General Mills, Inc. manufactures and markets branded consumer foods worldwide. The company operates in 5 segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America and Pet. Its many brands include Betty Crocker, Cheerios, Fruit Roll-Ups, Häagen-Dazs, Lucky Charms, Nature Valley, Old El Paso, Pillsbury, Total, Wheaties and Yoplait.
Johnson & Johnson researches and develops, manufactures and sells various products in the healthcare field worldwide. It operates in 3 segments: Consumer Health, Pharmaceutical and Medical Devices. Its 100+ brands include Johnson’s, Aveeno, Listerine, Neutrogena, Tylenol, Benadryl, Nicorette, Pepcid, Stayfree, Carefree and Band-Aid.
Walmart Inc. is a global retailer and wholesaler that operates approx. 10,500 stores and e-commerce websites under 45+ banners in 20+ countries. Its holdings include supercenters, warehouse clubs, discount stores, gas stations, ecommerce websites and mobile apps. Its products include groceries, electronics and items for health, beauty, home, outdoor activities, personal care and recreation. Walmart also offers money transfer, bill payment and loan services.
Individual stocks are highly liquid. But if you want exposure to a broader range of consumer staples stocks, consider investing in exchange traded funds (ETFs). ETFs hold stocks in many companies and are therefore more diversified and less risky than buying a few individual stocks. That being said, ETFs typically pay lower dividends and may come with higher fees.
Look for ETFs that track the consumer staples sector like the ones below:
Stock | Code | Exchange | |
---|---|---|---|
BMO Global Consumer Staples Hedged to CAD Index ETF | STPL | TSX | |
FT AlphaDEX U.S. Consumer Staples Sector Index ETF | FHC | TSX | |
iShares S&P/TSX Capped Consumer Staples Index ETF | XST | TSX | |
Consumer Staples Select Sector SPDR ETF | XLP | NYSE Arca | |
Vanguard Consumer Staples ETF | VDC | NYSE Arca | |
Fidelity MSCI Consumer Staples Index ETF | FSTA | NYSE Arca | |
iShares Global Consumer Staples ETF | KXI | NYSE Arca | |
Invesco S&P 500 Equal Weight Consumer Staples ETF | RHS | NYSE Arca | |
iShares US Consumer Goods ETF | IYK | NYSE Arca | |
First Trust Consumer Staples AlphaDEX Fund | FXG | NYSE Arca | |
IQ Global Agribusiness Small Cap ETF | CROP | NYSE Arca |
Use the graph below to track how the Consumer Staples Select Sector SPDR ETF (XLP) in the US has been performing over the past 3 months, year and 5 years. Tracking the performance of this ETF is one way to gauge how the sector as a whole is doing.
Since the demand for consumer staples doesn’t slow even in a weak economy, the sector is noncyclical. These stocks are less susceptible to the swings of the stock market when consumer spending on luxury goods and nonessentials rises and falls. This makes consumer staples stocks even more attractive during periods of inflation, recession or market volatility.
The consumer staples sector outperformed the broader S&P 500 index during the last 3 recessionary periods. For example, during the Great Recession of 2008, the consumer staples sector returned 13.7% from 2007 to 2009, compared to the broader S&P 500 index decline of 5%.
Consumer staples stocks generally see slow and steady growth and can help diversify your portfolio. An added perk is its higher dividend yield than the S&P 500 Index—even during a recession.
Even though the consumer staples sector will likely always be around, they face unique challenges today.
To invest in stocks or ETFs, you’ll need a brokerage account. Use the table below to compare your options and find the best fit.
The consumer staples sector may be a good choice if there are signs of a recession on the horizon or if you don’t mind slow, long-term growth. Explore online trading platforms to find a brokerage firm that’s right for your financial goals.
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